Bets Off on Terror Futures Index

WASHINGTON – The Pentagon will abandon a plan to establish a futures market to help predict terrorist strikes, the chairman of the Senate Armed Services Committee said Tuesday.

Sen. John Warner (R-Virginia) said he spoke by phone with Tony Tether, the head of the agency overseeing the program, “and we mutually agreed that this thing should be stopped.” Tether is the head of the Pentagon’s Defense Advanced Research Projects Agency, known as DARPA.

Later, in an interview, Warner said that DARPA “didn’t think through the full ramifications of the program.”

“The head of DARPA inasmuch stated that to me by phone and he on his own initiative is looking to frankly stop all engines on this matter today,” the senator said.

Warner announced the decision not long after Senate minority leader Tom Daschle took to the floor to denounce the program as “an incentive actually to commit acts of terrorism.”

Warner disclosed the change in plans during a confirmation hearing for retired Gen. Peter J. Schoomaker, nominated to be Army chief of staff.

“This is just wrong,” declared Daschle, a South Dakota Democrat.

Warner said he consulted with Senate Intelligence Committee chairman Pat Roberts, (R-Kansas), and Appropriations Committee chairman Sen. Ted Stevens (R-Alaska), and they agreed “that this should be immediately disestablished.”

He said they would recommend that the Pentagon not spend any funds already in place for the program and said they would pull the plug on it during House-Senate budget conference committee negotiations later on this year.

The little-publicized Pentagon plan envisioned a potential futures trading market in which speculators would wager on the Internet on the likelihood of a future terrorist attack or assassination attempt on a particular leader. A website promoting the plan already is available.

When the plan was disclosed by two Democratic senators Monday, the Pentagon defended it as a way to gain intelligence about potential terrorists’ plans.

Earlier, Warner had said that his staff was looking into the program and would report on it later Tuesday. Sen. Hillary Rodham Clinton (D-New York), said she was appalled to hear of plans to set up “a futures market in death.”

Other Democrats expressed similar alarm.

“The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it’s grotesque,” said Sen. Ron Wyden (D-Oregon), one of two lawmakers who disclosed the plan Monday.

The program is called the Policy Analysis Market. DARPA said it was part of a research effort “to investigate the broadest possible set of new ways to prevent terrorist attacks.”

Traders would have bought and sold futures contracts — just like energy traders do now in betting on the future price of oil. But the contracts in this case would have been based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events, such as terrorist attacks.

Holders of a futures contract that came true would have collected the proceeds of traders who put money into the market but predicted wrong.

A graphic on the market’s Web page Monday showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown. Although the website described the Policy Analysis Market as a Middle East market, the graphic also included the possibility of a North Korea missile attack.

That graphic apparently was removed from the website hours after the news conference in which Wyden and fellow Democratic Sen. Byron Dorgan of North Dakota criticized the market.

Dorgan described the market as “unbelievably stupid.”

“Can you imagine if another country set up a betting parlor so that people could go in … and bet on the assassination of an American political figure or the overthrow of this institution or that institution?” he said.

But in its statement Monday, DARPA said markets could reveal “dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions.”

According to its website, the Policy Analysis Market would be a joint program of DARPA and two private companies: Net Exchange, a market technologies company, and the Economist Intelligence Unit, the business information arm of the publisher of The Economist.

DARPA has been criticized by Congress for its Terrorism Information Awareness program, a computerized surveillance program that has raised privacy concerns. Wyden said the Policy Analysis Market is under the supervision of retired Adm. John Poindexter, the head of the Terrorism Information Awareness program and, in the 1980s, national security adviser to President Reagan.

The site does not address how much money investors would be likely to put into the market but says analysts would be motivated by the “prospect of profit and at pain of loss” to make accurate predictions.

Trading was to begin Oct. 1. The market would have initially be limited to 1,000 traders, increasing to at least 10,000 by Jan. 1.

Dorgan and Wyden released a letter to Poindexter calling for an end to the program. They noted a May 20 report to lawmakers that cited the possibility of using market forces to predict whether Israel will be attacked with biological weapons.

“Surely such a threat should be met with intelligence gathering of the highest quality,” they said, “not by putting the question to individuals betting on an Internet website.”